Client Communication and Relationship Management Flashcards

What is 'confirmation bias' in investor behavior?

Answer: The tendency to seek information that confirms existing beliefs while ignoring contradictory evidence

Confirmation bias causes investors to focus on information that supports their existing views and dismiss data that contradicts them, leading to poor decisions.

What is 'anchoring bias' in investment decision-making?

Answer: Over-relying on an initial piece of information when making investment decisions

Anchoring bias causes investors to fixate on an initial reference point (like a purchase price) rather than evaluating current market information objectively.

What should a CPS professional do when a client's goals change significantly?

Answer: Update the investment policy statement and reassess the portfolio allocation

Significant life changes affecting client goals should trigger an immediate update to the investment policy statement and portfolio reassessment.

What is the purpose of regular portfolio performance reporting to clients?

Answer: To keep clients informed, demonstrate value, and maintain trust through transparency

Regular performance reporting maintains client trust, demonstrates the value of professional management, and keeps clients informed about progress toward goals.

What is 'herding behavior' in investor psychology?

Answer: Following the crowd and making investment decisions based on what others are doing

Herding behavior occurs when investors follow the crowd rather than conducting independent analysis, often amplifying market bubbles and crashes.

Why is ongoing client education important for a CPS professional?

Answer: It helps clients make informed decisions, set realistic expectations, and stay committed to long-term plans

Client education helps investors understand market behavior, maintain perspective during volatility, and remain committed to well-constructed long-term investment plans.